Liam Croke: One hour a day can make you a millionaire...

Who wants to be a millionaire? For most people the answer to this question is YES, of course. Who wouldn’t want to be a millionaire?

Who wants to be a millionaire? For most people the answer to this question is YES, of course. Who wouldn’t want to be a millionaire?

Just think of the things you could do with that amount of money, the freedom, opportunity and choices it would give you.

But unless we inherit or win this amount, it might seem too much of a stretch to most of us to think that we would ever reach the million euro mark by just saving alone.

But think again, because it might not be as hard as you would first imagine.

Let me explain further.

One of my favourite personal finance authors, David Bach, suggests that if you save one hour of your income every day and spend the rest on everything else, you will accumulate a significant amount of money and the maths actually backs his claim up.

The average weekly wage in Ireland is c. €700 which translates into an hourly salary of €22 and I know for many it may be over this amount but for the purpose of this exercise, let me work off this figure.

So, let’s assume that you and your partner commit to saving one hour of what you earn every day:

€22 per day by you and €22 by your partner = €44 per day of saving

1 year saving this amount is €44 x 365 = €14,600

Now when you apply the magic of compound interest where your annual return is 7% (this is the historical gains in stock indexes per year and the figure Warren Buffett predicts long term annualised returns will be in the early to mid- 21st century) over a 25 year term, the future value of your savings account will be €923,435.95.

In Bach’s bestselling book, Start Late Finish Rich, he claims you don’t have to start saving very early to end up with a large amount in your savings account when you are older, but obviously saving at a younger age will help you get there easier and faster.

It is not beyond anyone’s reach, however, regardless of their age to build up a significant of money; all you have to do is commit to saving one hour of your income every day. Can you do that?

So the amount you earn between 9am and 10am every day is yours to keep and is going into a savings or pension account and the amount you earn for the rest of the day can go towards taxes, loan repayments, utilities and so on.

And I appreciate this is easier said than done given the cost of servicing debt and the costs associated with raising children and so on but if you did find it difficult to save one hour of your income every day, could you and your partner save 20 minutes?

Because if you did, in 25 years you would have c. €362,272.15 sitting in your account, so it doesn’t have to rounded up to saving an hour of your income either. Don’t discount smaller amounts and think the amount you will accumulate won’t be worth the effort, this clearly isn’t the case.

When it comes to saving and how much we should be setting aside each month, I believe we need to start changing our behaviour and our mind set from saving a certain rounded amount each month to saving based on the amount of time we spend working each day and paying our self a portion of the income we receive for that day.

When I ask people about the amount they save each month and why it is a particular amount, I would say that nearly 100% of them have no rationale behind the number; it’s an amount they feel they can afford to set aside each month or it’s even a number they continued on with from the good old days of the SSIA accounts of the noughties.

And some of the amounts are quite big but when I equate them to the amount they earn each day, they are small, so do people not value their time and effort and the amount they earn as much as they should?

One person I was working with recently was saving €250 each month, an excellent figure, but this amount compared to the number of hours he was working each month was actually very small because he was saving just 3.7 hours out of a typical month which saw him work 180 hours.

Please do not get me wrong, I am not suggesting that we should all work as hard and as long as we can now and save every cent we earn, so that we can live comfortably when we retire.

Doing this would be insane because you would be denying yourself the things that keep you healthy, happy and sane today but we do need to start valuing our time a bit more because if we do, our savings levels will soar and I’m betting our productivity levels at work will as well.

We work on average 1,529 hours per year, and let me refer back to the example about a couple saving 20 minutes of their income every day because if they did, they would accumulate c. €362,272 in 20 years. Do you know how many hours that is over one year? It’s just 174 hours’ between them out of an average of 3,058 working hours for two people. It doesn’t seem that much when you look at it this way does it?

Again it is very important to consider saving this way, otherwise your chances of achieving a considerable sum of money or becoming that millionaire are greatly reduced.